Special: Real Estate Sector
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While real estate platforms are primarily digitising existing products and processes, innovative and to some extent disruptive business models are emerging around the world on the financing and technology front. Currently still thwarted by intermediaries or prevented by legal regulators, these innovations have the potential to shake up the real estate sector as it exists. This is opening up enormous opportunities but at the same time confronting all players with huge challenges. One technology in particular is electrifying the real estate sector: Blockchain. the Internet of Value.
Blockchain technology enables direct transactions between sender and recipient, without any intermediary. While attention is currently focused chiefly on cryptocurrencies like Bitcoin, Blockchain is so much more. This technology is the ideal platform for exchanging goods and data in a manner that is both secure against forgery and traceable forever. Fiduciary third parties like notaries, banks and public agencies are becoming less important. Precisely for the real estate sector, in which so much is based on standardised and recurring transactions, Blockchain implies enormous efficiency gains, with experts even talking of a revolution.
The internet has evolved for us from communication in a first stage (Web 1.0) into interaction in a second stage (Web 2.0). As the Internet of Value, Blockchain will now seriously affect our transaction behaviour: Thus in future we will effortlessly check property rights on Blockchains and be able to transfer them without intermediaries. As a sequence that is both unchangeable and cryptographically secure, this technology will form the reliable, tamper-proof Backbone.
In future we will no longer have to turn to the municipality’s land registry to have our property transferred to a new owner in a highly expensive and time-consuming process. The selling process’s value flow will be handled directly between purchaser and vendor and without any intermediary, and a public Blockchain will document the transaction unalterably. In doing so, smart contracts will automatically trigger important subprocesses such as the levying of taxes and fees. It will not be long before real estate investors and owners find that, as owners, they can extend their own value creation chain and control it on a private Blockchain. Thus externally instructed portfolio and asset managers, marketers, estate managers and tenants will execute their transactions on their own Blockchains. In doing so, they will regain their properties’ data sovereignty and value creation chain. Smart contracts will issue and administer leases, deduct ancillary costs and control estate managers’ service agreements.
Under existing legal regulations, private Blockchains in particular will significantly gain in importance in the near future such that they will for example record internal business procedures. For reasons of efficiency and in their own interests, companies involved in a joint supply chain (e.g. overseas logistics and shipping, real estate owners and estate managers) will record their transactions on a joint private Blockchain.
Another Blockchain application has recently emerged: tokenisation of the real economy, closely connected with the meteoric rise in the initial coin offering (ICO). Unlike in other countries, the opportunities afforded by the token economy have yet to reach the Swiss real estate sector. This should not be seen in a negative light but is instead to do not only with existing legal bases but also with the anticipated regulatory plans of the Swiss Financial Market Supervisory Authority (FINMA). Depending on the area of application, it is necessary to ensure that the token design in question or the handling of the ICO complies with existing financial market laws. Checks are currently conducted to see whether questionable ICO models breach supervisory laws or represent an attempt to circumvent them. Accordingly investors are uncertain and therefore still largely doing without cryptoeconomic investment models.
To date, concrete applications of Blockchain technology are rare in the real estate sector. If real estate trading is to be automated, a number of hurdles still need to be cleared and in particular existing laws need to be amended. Central institutions and agencies like to justify their role as intermediary. Regulatory framework conditions prevent crowdfunding and thus the market entry of small investors. In addition, we still await evidence that a peer-to-peer mortgage market is feasible.
So it will take a few more years before Blockchain technology and all it heralds will be introduced on a widespread basis. While in Singapore property owners can already conclude a purchase contract without involving a broker or notary, in Switzerland the initial ideas and application possibilities are only starting to emerge. Innovative companies are demonstrating their willingness to engage with the technology and assess its potential for themselves. In the medium term the technology’s breakthrough is unstoppable. The Swiss real estate sector would do well to grapple with the technology in earnest and not just surrender fields of innovation to foreign investors. To put it another way: It is always better to begin imperfectly than to hesitate perfectly.
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